Brexodous – you heard it here first folks! – will surely be the term coined to describe the shifting of banking HQs from London to new homes within the remaining EU region, should the UK’s apparent determination to turn its back on membership of the EU start to crystallise. A critical factor which has attracted foreign financial businesses to locate to London is the so-called “passporting” facility. This means that if a foreign business can be considered as having a London (or UK) HQ it can be treated as a UK business and therefore trade financial services across the 28-member bloc without hindrance. If the UK leaves the EU without securing this privilege (via continued membership of the Single Market), passporting will cease, making it vastly more difficult for all UK based financial businesses to transact across the bloc.
The start of Brexodous has been predicted by no lesser an authority than the British Bankers’ Association (BBA) in an article from its head, Anthony Browne in the Guardian newspaper. In his opinion piece, Browne suggests that smaller banks may move operations out of the UK by the New Year. His valuation of UK-EU financial services put the trade at about £20 billion a year, noting that: "Banking is probably more affected by Brexit than any other sector of the economy, both in the degree of impact and the scale of the implications. It is the UK's biggest export industry by far and is more internationally mobile than most. But it also gets its rules and legal rights to serve its customers cross-border from the EU."
Banks working in the UK already have teams studying which operations will need to leave the UK, how this can best be achieved and by when it needs to be done. Larger banks may start this process in Q1 2017 – according to Mrs May, notification of the UK’s intention to leave the EU will be delivered by the end of Q1.
To the dyed-in-the-wool hard Brexit contingent that doubt the importance of passporting, Browne pointed out: “…the EU’s “equivalence” regime is a poor shadow of passporting; it only covers a narrow range of services, can be withdrawn at virtually no notice and will probably mean the UK will have to accept rules it has no influence over. For most banks, having equivalence won’t prevent banks from relocating their operations. It is understandable that other European cities want to attract jobs from London. Delegations from Frankfurt, Paris, Dublin and Madrid are all coming to the UK to pitch to bankers.”
As Bob Marley might have sung “Brexodus, movement of the bankers…”, catchy, certainly, but probably calamitous for the UK economy.